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. Last Updated: 07/27/2016

Yukos Targets Gazprom in $20Bln Suit

Yukos is claiming damages of more than $20 billion from Gazprom, Rosneft and two other companies in a U.S. court for their role in what the beleaguered oil giant called the "expropriation" of Yuganskneftegaz, formerly its biggest unit.

In a statement released in Houston Friday, Yukos said it was seeking "in excess of $20 billion" from Gazprom, Rosneft, Gazpromneft and Baikal Finance Group.

Yukos filed the documents late Friday in the same Houston court where it filed for bankruptcy in December. Because they are "under seal," they are not available for public viewing. The documents do not name an actual sum, according to people close to the situation who asked to remain anonymous.

The oil company also filed a reorganization plan as part of its bankruptcy action and a request for the court to force the Russian government to enter international arbitration on a multibillion dollar tax claim.

The filings came just as reports emerged that Rosneft had financed its purchase of Yugansk via $5.5 billion in loans from subsidiaries in an apparent move to insulate it from litigation surrounding the controversial sale of the Yukos unit.

Yukos' claims are the latest in a spiraling political, financial and legal battle pitting the Kremlin against Group Menatep, Yukos' main shareholder and formerly one of the country's most powerful industrial groups.

The battle, which has hammered investor confidence, has led to the sale of Yugansk and a series of legal suits against the government and some of Russia's largest companies.

Last week, Group Menatep served the government with an arbitration notice that seeks at least $28.3 billion in damages for the breakup of Yukos. Yugansk was auctioned off in December to recover as much as $28 billion in back tax claims and fines.

Shortly before the auction, Yukos filed for bankruptcy in Houston, securing a temporary restraining order that barred Gazpromneft, Deutsche Bank and "those in active concert or participation with them" from bidding.

Friday's filings come ahead of a crucial hearing in Houston set for Wednesday, when the court will hear arguments by Deutsche Bank that it has no jurisdiction over Yukos.

Lawyers for Gazpromneft, which was sold by Gazprom ahead of the auction, have also challenged Yukos. Its 397-page challenge will probably be heard at the same time.

"This is nothing more than a desperate attempt to get more publicity before the court dismisses the case," said Michael Goldberg, an attorney for Baker Botts, which is representing Gazpromneft.

"After reading our motion to dismiss, Yukos knows the case will be dismissed so they are desperately trying to get some more publicity."

Baikal Finance Group, an unknown Tver-based company, won the auction for a 76.6 percent stake in Yugansk with a bid of $9.3 billion. In late December state-owned Rosneft announced it had bought Baikal -- though financing of the purchase remains murky.

Baikal and its lawyers could not be located on Sunday.

Gazprom, Deutsche Bank, Rosneft and lawyers representing the companies were unavailable for comment. Yukos spokesmen declined to comment further.

With its 47-page reorganization plan, Yukos may be seeking to subordinate tax claims to the company's creditors, according to court documents.

The 21-page filing on international arbitration requires the government to respond, as hearings are set for Feb. 24.

In the filing, Yukos lawyers cite Russia's law on foreign investment and President Vladimir Putin's economic advisor Andrei Illarionov, who in footnotes is cited as saying the transactions surrounding the Yugansk sale represented "the shady deal of the year."

Some of those transactions appeared in a new light Friday with the publication of a report that Rosneft units may have agreed to lend Rosneft as much as $5.5 billion -- interest free -- after borrowing billions of dollars from an mystery company.

Shareholders of three Rosneft subsidiaries -- Purneftegaz, Sakhalinmorneftegaz and Stavropolneft -- will vote at extraordinary shareholders meetings later this month on agreements to lend Rosneft a total of $5.5 billion and on the sale of billions of dollars worth in promissory notes to a little known company, local news agency AK&M reported Friday, citing materials prepared for the meetings.

Borrowing money from an unknown company via subsidiaries puts an extra layer of legal insulation between the true lender and Rosneft.

At the same time it complicates Gazprom's planned takeover of Rosneft by tying the oil company's units more closely with the litigious Yugansk deal and confusing Rosneft's valuation by building up a massive debt on its subsidiaries.

The delay throws into doubt the liberalization of Gazprom's share market because it undermines the government's plans to get formal control of the gas giant by merging Rosneft into Gazprom.

A Rosneft spokesman declined to comment on the news reports.

In a statement late Friday, Rosneft said the distribution of such information was "premature" and said the dates of the shareholder meetings may be changed or canceled.

Rosneft president Sergei Bogdanchikov told Kommersant last week that Yugansk was purchased with funds from asset sales to Gazprom, cash and borrowing from a consortium of Russian banks, which he declined to name.

Russian ministers have made a host of contradictory statements on billions of dollars of loans from China, which are thought to be linked to the Yugansk purchase. That link has been officially denied.

According to AK&M, shareholders of Purneftegaz will vote on two interest-free loans totaling 127.03 billion rubles ($4.57 billion): a $3.2 billion credit at a ruble rate of 27.74 rubles per dollar and a ruble credit of 38.24 billion rubles.

The agreements were signed on Dec. 16 and 21, respectively. The ruble rate was the Central Bank's rate on Dec. 30-31.

Purneftegaz shareholders will also vote on approving the sale of 19 promissory notes, or veksels, with a face value of $3.2 billion to a company called Trade-Express. Under this agreement, dated Dec. 16, the veksels yield 2.5 percent annually and could be redeemed no earlier than the end of January.

Sakhalinmorneftegaz shareholders will look at a similar deal to lend $780 million to Rosneft by selling veksels to Trade-Express, while Stavropolneft shareholders will be asked to approve a $120 million loan to Rosneft financed by selling veksels to Trade-Express.

Rosneft owns 83 percent of Purneftegaz, 63.3 percent of Sakhalinmorneftegaz and 72 percent of Stavropolneft.

Such a scheme would mean the flow of money -- if it was not simply a paper transaction -- comes from Trade-Express via the subsidiaries to Rosneft.

"The use of an unknown vehicle, OOO Trade-Express, to channel the money into Rosneft's subsidiaries and then on to Rosneft is apparently an attempt to further complicate any potential legal challenges from the former owners of Yuganskneftegaz," said Dmitry Loukashov, an oil and gas analyst at Aton.

"In my opinion, another reason is that management want these subsidiaries to be involved in the Yugansk transaction and that makes it much more complicated for Rosneft's assets to be merged into Gazprom."

It was unclear what Trade-Express is or where it got such massive funds.

The Moscow Times identified three firms called Trade-Express. One is registered in Lisichansk, Ukraine, another in Vologda, northeast of Moscow and the third in Gorno-Altaisk in the republic of Altai.

The Altai-registered Trade Express is a shareholder in Novosibirsk-based Western Siberian River Steamline, whose web site says its main shareholder is Vostokgazprom, a Gazprom unit.

If the AK&M report is correct, Trade Express' veksel purchases from Rosneft subsidiaries within a few days in December total about 80 percent of the country's total foreign direct investment last year. If Trade-Express were a foreign company, it would be one of the biggest foreign direct investors in Russian history.

By borrowing at a 2.5 percent annual rate, Rosneft subsidiaries are borrowing at a cheaper rate than the U.S. Federal Reserve or the British Treasury, both which are considered low-risk borrowers with a long sovereign credit history.

But Rosneft, already heavily in debt before the Yugansk purchase, may have opened a whole set of questions for the shareholders of its subsidiaries.

"With these units -- whose shares trade -- it is now difficult to know what you are buying, how much debt or cash they have and the exact assets they own," said Oleg Maximov, an oil and gas analyst at Troika Dialog.

n On Friday, Vedomosti published Bogdanchikov's response to an earlier editorial in the paper demanding information on the Yugansk transaction.

He said Rosneft would always support efforts for "the formulation in Russia of democratic traditions of openness and transparency in relations between the state, society and entrepreneurial entities." But he added that the details of the Yugansk purchase were confidential.

n Rosneft paid 260.7 billion rubles ($9.3 billion) into the budget for the Yugansk purchase by the end of last year, the company said in a statement Friday. However Prime Minister Mikhail Fradkov told deputies last week that only 213 billion rubles ($7.6 billion) raised in the auction had reached its intended destination. The reason for the discrepancy was unclear Friday.

Rosneft also said that output in 2004 rose 10.5 percent to 21.6 million tons while gas production rose 31.6 percent to 9.2 billion cubic meters. Net profit totaled 25.8 billion rubles.